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In Good Times and in Bad

The United States will Consume Only Four-tenths of a Percent More Electricity in 2009 than in 2008, according to the Energy Information Association (EIA). But, hey, as we head into a recession, any growth is good. And the news in bulk power delivery is quite promising, as we have been averaging 7% to 8% growth per year in new transmission investment since 2004. We are also seeing a national push to build out a transmission superhighway to bulk up our antiquated and overloaded power grid, so expect our transmission and substation engineers to see good times for the coming decade. And the push for green, particularly wind, only increases the need for a revamped bulk power delivery system.

At the same time, we've seen much-needed rate increases approved by state commissioners. According to the EIA, electricity rates were projected to increase by 6.2% in 2008 and an additional 9.4% in 2009. I expect we will not be able to pass through too many more increases until we hit a rate ceiling. In several states where price caps were lifted and electricity prices jumped dramatically, it will be next to impossible to get further rate relief any time soon.


It is comforting to know we work in an industry where meters will continue to spin and revenues will continue to flow, as power consumption remains essentially constant, or nearly so, in an era where many discretionary purchases will be curtailed.

We've seen double-digit drops in new housing construction, which impacts new distribution construction. But with an aging infrastructure, we have no choice but to change out poles, install replacement underground cables and replace end-of-life transformers and breakers.

The United States is not alone. Many countries around the globe are carrying significant debt. And with one nation after another announcing bank bailouts, we are piling on even more global debt.

Of course, many of our heavy industries fund their major construction programs with debt. And guess which industry is among the heaviest borrowers? You guessed it, the electric power industry. We are an asset-heavy industry and borrow heavily to finance new power stations and power lines, and are reimbursed when costs are rolled into the rate base. Even though money is tight, expect utilities with steady cash flow to continue to find access to cash.

As reported by Business Week on Nov. 25, 2008, electric utility stock prices are down 19% over the past year, which is nothing to write home about. But considering the broad-based Standard and Poor's 500 Index has dropped more than 46% over the same time period, utility stocks are holding up modestly well, while providing dividends to shareholders.

Everyone has an opinion on how we got into this global economic mess. But one needs to look no further than the mirror. On the main, we individuals who make up this global economy spend more than we make. We run up credit card debt and take out loans for homes we can't afford. Give partial credit to Wall Street for figuring out how to roll up these loans into complex bundled financial packages that are a nightmare to unbundle when underlying loans go into default. Although the financial downturn started in the United States, international banking practices quickly spread the contagion worldwide.

Cities, states and federal governments with shrinking revenues are looking for ways to cut costs and reduce staffs. And businesses are doing the same. Optimistic projections call for this recession to last 12 to 18 months.


Although we are seeing global upheaval, this downturn is also personal. Our real estate agent is waiting tables and a friend just called to inform me he lost his job in the non-profit sector. Even closer to home, my son is finishing up a master's degree in operations management from Purdue University. Even with a high grade-point average, he's been extended only one job offer. But in these times, one is all he needs. I hope it won't be retracted between now and the day he graduates.

In the 56 years I've been on this planet, I've seen quite a few periods where greed drives decisions, soon to be followed by fear. Most recently, we've seen the telecom and Internet bubbles burst. Now, we are seeing the dual implosion of real estate and banking. We know trying times will end and we'll enter yet another cycle of innovation and prosperity.

On a national note, President-elect Barack Obama has set a goal to create and save 2.5 million jobs by “rebuilding our infrastructure, our roads, bridges, modernizing our schools and creating the clean infrastructure of the 21st century.”

Let's make the best of the situation and pull together as an industry to make wise investment and operational decisions for tomorrow and for a thousand tomorrows.

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